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Source: The post is based on the article “Demand to exploration: Key warning signals for India’s gas industry in 2023” published in the Business Standard on 2nd January 2022.
Syllabus: GS 3 – Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
Relevance: About gas-based economy in India.
News: Indian natural gas business is key to the country achieving its net-zero targets in 2070.
Why does India need to focus on gas based economy?
-Unlike oil, where India has a cheap supply source in Russia, and other affordable sources in West Asia, there is no one to supply liquefied fuel to India at rates that consumers can afford.
-India’s fertiliser and domestic city gas businesses are heavily dependent on natural gas supplies.
-India’s 2070 net-zero climate change target is contingent on increasing gas as a fuel in the economy.
|Read more: The Russia-Ukraine war has put the spotlight on the role of Liquefied Natural Gas (LNG) in the global energy futures.|
What are the key warning signals for India’s gas industry in 2023?
Reduction in demand: Demand for gas in India declined for the first time in eight years this fiscal (excluding a Covid-19-induced dip in 2020-21) after rising steadily until 2019-20.
India’s gas demand was still below 2011-12 levels when India’s dependence on imported LNG was at around half of the current levels.
Decline in gas prices: Russian state-run Gazprom’s sales to Europe and Turkey were at their lowest this century. The squeeze on European supplies increased benchmark gas prices at Dutch TTF to a record in August equivalent to $94 per mBtu (million British thermal units) LNG levels.
But TTF month-ahead prices now average $36 per mBtu, 5% below last year’s levels. This drastic decline in gas is due to mild weather and adequate inventories in Europe.
Volatility in gas rates for India: Europe will need around 75 million tonnes a year of LNG, equivalent to over three times what India consumes, to substitute 100 billion cubic metres of Russian gas this year.
But Qatar, the world’s biggest LNG producer, plans to increase output by only 33 million tonnes a year. This exposes countries like India to volatility in rates in the meantime.
Lack of storage facilities in India: There are almost no gas storage facilities, unlike in China, the US and Europe because the government did not focus on this aspect of the gas supply chain. This makes India even more vulnerable to global price swings.
Reduction in supply to India: Gazprom abruptly ceased 2.5 million-tonne-a-year shipment under a 20-year contract with GAIL.
Over a third of India’s annual LNG supplies comes from a single Qatari supply contract. This is set to expire in a few years. Now Indian importers must compete with Europe, which has the ability to pay steep premiums for term volumes.
India lacks gas exploration: India’s potential gas reserves lie in deep waters. So, gas exploration in India is expensive and high-risk to drill.
The government might accept the recommendations of the Kirit Parikh committee. The committee recommended capping rates at 24% less than the $8.57 per mBtu that explorer ONGC currently charges for supplies. India’s latest price caps on domestic gas supplies will threaten and deter exploration.
|Read more: Bottlenecks slow progress of ‘one nation one gas grid’|
What should be done to improve gas based economy in India?
The government must be nimble, creative, targeted and pragmatic in new global gas environment. For that, India must free fuel prices instead of meddling with them and regulators must implement the proposals in a faster manner.